Lockheed Martin 2015 Annual Report Download - page 80

Lockheed Martin Corporation
Notes to Consolidated Financial Statements
Note 1 – Significant Accounting Policies
Organization – We are a global security and aerospace company principally engaged in the research, design,
development, manufacture, integration and sustainment of advanced technology systems, products and services. We also
provide a broad range of management, engineering, technical, scientific, logistics and information services. We serve both
U.S. and international customers with products and services that have defense, civil and commercial applications, with our
principal customers being agencies of the U.S. Government.
Basis of presentation – Our consolidated financial statements include the accounts of subsidiaries we control and
variable interest entities if we are the primary beneficiary. We eliminate intercompany balances and transactions in
consolidation. Our receivables, inventories, customer advances and amounts in excess of costs incurred and certain amounts
in other current liabilities primarily are attributable to long-term contracts or programs in progress for which the related
operating cycles are longer than one year. In accordance with industry practice, we include these items in current assets and
current liabilities. Unless otherwise noted, we present all per share amounts cited in these consolidated financial statements
on a “per diluted share” basis. Certain prior period amounts have been reclassified to conform with current year presentation.
On November 6, 2015, we completed the acquisition of Sikorsky Aircraft Corporation (Sikorsky) for $9.0 billion, net of
cash acquired. Sikorsky, a global company primarily engaged in the design, manufacture, service and support of military and
commercial helicopters, has become a wholly-owned subsidiary of ours, aligned under our MST business segment. The
financial results of the acquired Sikorsky business have been included in our consolidated results of operations from the
November 6, 2015 acquisition date through December 31, 2015. Accordingly, the consolidated financial results for the year
ended December 31, 2015 do not reflect a full year of Sikorsky operations.
During the fourth quarter of 2015, we realigned certain programs between our business segments in connection with the
strategic review of our government informational technology (IT) and technical services businesses. The amounts, discussion
and presentation of our business segments as set forth in all years presented in our consolidated financial statements have
been reclassified from prior year presentation to reflect the realignment. The realignment did not impact the Corporation’s
previously reported consolidated financial statements. See “Note 5 – Information on Business Segments” for additional
information including revised historical segment results under our new structure.
On January 26, 2016 we entered into definitive agreements to separate and combine our Information Systems & Global
Solutions (IS&GS) business segment with Leidos Holdings, Inc. (Leidos) in a tax-efficient Reverse Morris Trust transaction.
Subsequent to the program realignment described above, our IS&GS business segment represents the government IT and
technical services businesses that were under strategic review. The transaction is expected to close in the third or fourth
quarter of 2016. Until closing, IS&GS will operate as a business segment and financial results for the IS&GS business
segment will be reported in our continuing operations. See “Note 3 – Acquisitions and Divestitures” for additional
information about the planned divestiture of our IS&GS business segment.
Use of estimates – We prepare our consolidated financial statements in conformity with U.S. generally accepted
accounting principles (GAAP). In doing so, we are required to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. We base these estimates on historical experience
and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
Our actual results may differ materially from these estimates. Significant estimates inherent in the preparation of our
consolidated financial statements include, but are not limited to, accounting for sales and cost recognition, postretirement
benefit plans, environmental receivables and liabilities, evaluation of goodwill and other assets for impairment, income taxes
including deferred tax assets, fair value measurements and contingencies.
Sales and earnings – We record net sales and estimated profits for substantially all of our contracts using the
percentage-of-completion method for cost-reimbursable and fixed-price contracts for products and services with the U.S.
Government. Sales are recorded on all time-and-materials contracts as the work is performed based on agreed-upon hourly
rates and allowable costs. We account for our services contracts with non-U.S. Government customers using the services
method of accounting. We classify net sales as products or services on our Statements of Earnings based on the attributes of
the underlying contracts.
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